IMPACT ON TAXPAYERS

Corporate mergers and acquisitions can be large dollar, complex transactions that potentially have large tax implications. Some of those transactions can be tax-free depending on the structure. It is important that the IRS ensure that these complex transactions are in compliance with the tax law and that the appropriate amount of tax is paid.

WHY TIGTA DID THE AUDIT

The Institute for Mergers, Acquisitions, and Alliances reports that there were 14,540 mergers and acquisitions in the United States in Calendar Year 2018, with a value of almost $1.9 trillion. There have been approximately 120,000 domestic corporate mergers and acquisitions in the last 10 calendar years, totaling $15.3 trillion. The Internal Revenue Code permits tax-free treatment for transactions that meet certain technical requirements, and taxpayers sometimes make the form of the transaction appear to satisfy those requirements while the substance does not. The Large Business and International Division (LB&I) has been transitioning to issue-based audits and has adopted a “campaign” approach to auditing specific issues. TIGTA performed this review to determine whether the IRS had an effective strategy with respect to the compliance risks presented by mergers and acquisitions.

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